Which is the least worst tax - Sales or Land?

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Merlin
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Re: Which is the least worst tax - Sales or Land?

Post by Merlin » Wed Jun 13, 2018 10:33 pm

Physiocrat wrote:
Wed Jun 13, 2018 11:56 am
I'm probably being dense but how would it allow taxpayers to be anonymous?
[/quote]

Well, you only need registered VAT-paying entities to retain all records of sales or purchases (from other VAT-payers). That’s it.

No snooping into any individual’s income streams, income declarations, complicated deductions and loopholes. No need to scrutinise a company’s financial statements and get bogged down in accounting minutiae.

In theory, a country that only applies VAT would only have a central register of companies (no need to know who owns these) and a real-time billing system.

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Physiocrat
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Re: Which is the least worst tax - Sales or Land?

Post by Physiocrat » Thu Jun 14, 2018 6:59 am

Merlin wrote:
Wed Jun 13, 2018 10:33 pm
Well, you only need registered VAT-paying entities to retain all records of sales or purchases (from other VAT-payers). That’s it.

No snooping into any individual’s income streams, income declarations, complicated deductions and loopholes. No need to scrutinise a company’s financial statements and get bogged down in accounting minutiae.

In theory, a country that only applies VAT would only have a central register of companies (no need to know who owns these) and a real-time billing system.
Ah ok. All I was thinking was if you made VAT the only tax it would still require lots of self-employed workers who currently pay income tax, just to pay VAT instead.

EDIT - more number crunching. The UK's nominal GDP is around £1.96tr. The UK government budget is around £800bn. So that would mean a flat VAT rate on all new purchases (I think the purchase of used items doesn't count in GDP IIRC) of 40.8% if all other taxes were abolished. Now I've probably just worked out government spending as a proportion of GDP. I feel like I'm missing something here in the calculation but not sure what.
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Jon Irenicus
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Re: Which is the least worst tax - Sales or Land?

Post by Jon Irenicus » Thu Jun 14, 2018 10:48 am

Unfunded liabilities supposedly funded by NI taxes perhaps?
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Re: Which is the least worst tax - Sales or Land?

Post by Physiocrat » Thu Jun 14, 2018 1:50 pm

Jon Irenicus wrote:
Thu Jun 14, 2018 10:48 am
Unfunded liabilities supposedly funded by NI taxes perhaps?
Well yes but I was thinking more of as to whether dividing the government budget by the nominal GDP figure was actually the right way to go to calculate a single VAT rate which would maintain current government revenue.
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Jon Irenicus
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Re: Which is the least worst tax - Sales or Land?

Post by Jon Irenicus » Thu Jun 14, 2018 3:36 pm

The flaw is the idea that it would need to be maintained at current levels. :p However, that aside, its annual expenditure in GDP terms makes sense to me. Pretty sure part of that would be financed through bond sales and by extension QE, but the goal would be to eliminate the latter and restrict the former.
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Merlin
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Re: Which is the least worst tax - Sales or Land?

Post by Merlin » Thu Jun 14, 2018 10:34 pm

Physiocrat wrote:
Thu Jun 14, 2018 6:59 am
EDIT - more number crunching. The UK's nominal GDP is around £1.96tr. The UK government budget is around £800bn. So that would mean a flat VAT rate on all new purchases (I think the purchase of used items doesn't count in GDP IIRC) of 40.8% if all other taxes were abolished.
I get very similar rates (35-40%) when working out my own government's spending financing requirements. It looks appalling until one realises that it would mean no other taxes at all, after which it begins to look more tolerable.

The issue here is that we don't really know the VAT's Laffer point: the higher rate now applicable is 27% (in Hungary, I think), and even than applies to a few items and not across the board (by the way, big mistake to have differing VAT rates for different items). So, there is a very real risk that jacking it up to 40% would produce far less than the proportionate increase it intake. Perhaps VAT rates of 20% are the Laffer maximum after all.

Of course, one wouldn't just jack the rates up overnight, but would gradually finance decreases in income taxes with VAT increases so the process would continue until feasible.

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Merlin
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Re: Which is the least worst tax - Sales or Land?

Post by Merlin » Thu Jun 14, 2018 10:39 pm

Jon Irenicus wrote:
Thu Jun 14, 2018 3:36 pm
However, that aside, its annual expenditure in GDP terms makes sense to me. Pretty sure part of that would be financed through bond sales and by extension QE, but the goal would be to eliminate the latter and restrict the former.
Agreed, when discussing tax reform to makes sense to assume neutrality and work from there. Any budgetary reforms needed to bring the black back would then be a different topic.

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Re: Which is the least worst tax - Sales or Land?

Post by Jon Irenicus » Fri Jun 15, 2018 6:20 am

Also I think if it were in plain view just how high a tax would be required to sustain current spending levels, it might invigorate the appetite to see spending cuts through.
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Re: Which is the least worst tax - Sales or Land?

Post by Physiocrat » Fri Jun 15, 2018 8:32 am

Merlin wrote:
Thu Jun 14, 2018 10:34 pm
I get very similar rates (35-40%) when working out my own government's spending financing requirements. It looks appalling until one realises that it would mean no other taxes at all, after which it begins to look more tolerable.

The issue here is that we don't really know the VAT's Laffer point: the higher rate now applicable is 27% (in Hungary, I think), and even than applies to a few items and not across the board (by the way, big mistake to have differing VAT rates for different items). So, there is a very real risk that jacking it up to 40% would produce far less than the proportionate increase it intake. Perhaps VAT rates of 20% are the Laffer maximum after all.

Of course, one wouldn't just jack the rates up overnight, but would gradually finance decreases in income taxes with VAT increases so the process would continue until feasible.
Your Laffer point is well made. The current VAT rate in the UK is already 20%. So yes a gradual decrease in other taxes and income taxes should take place first with an increase in VAT (a flat VAT rate on all new items makes sense, if you think the poor are worse off just provide more benefits, that way there's less loopholes and you don't distort spending as much)

Strategically I'd remove the lower earners from income tax altogether. You could have income free earnings until £42,000 (this is the current start of the higher rate of 40%). I'm less of a gradualist but I reckon you could phase out all other taxes in 5 years. In the context of the UK this is the length of a parliament so you'd want to be able to get most serious policy done within five years in case you aren't re-elected.

Jon, Having VAT as a tax which is added when you get to the till would be preferable as it would raise tax consciousness.
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Merlin
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Re: Which is the least worst tax - Sales or Land?

Post by Merlin » Fri Jun 15, 2018 11:16 am

Physiocrat wrote:
Fri Jun 15, 2018 8:32 am
Strategically I'd remove the lower earners from income tax altogether. You could have income free earnings until £42,000 (this is the current start of the higher rate of 40%). I'm less of a gradualist but I reckon you could phase out all other taxes in 5 years. In the context of the UK this is the length of a parliament so you'd want to be able to get most serious policy done within five years in case you aren't re-elected.
I would quibble with the details. Just rushing to remove to bottom earners from the income tax scheme (financing the shortfall with higher VAT rates) would fly easily but would put you in a delicate position once there are no more low earners left to free: you’d still have an income tax scheme (including those better off) as well as corporate taxes. But now no one cares about those since the masses get nothing more in return for higher VAT rates. The plan is stuck in a high business tax scenario (high VAT, corporate income tax still on the books) and you can’t find the political allies to change it.

I’d rather go for decreasing the bottom marginal rate in the income tax and the corporate income tax at the same rate. This way you have a pool of low-earner who still have an incentive to vote for your plan to make VAT the law of the land. When the last low-earner is freed form direct taxation, your reform plan loses steam, so let this moment come as late as possible.

The risk of not being re-elected will just have to be taken on.

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